Owing a large amount in student loans can cause a borrower a lot of stress as he or she tries to figure out a way to make payments and still afford other necessities. The unaffordability of student loans can cause the borrower to consider declaring bankruptcy. While bankruptcy can help with handling student loan debt, it cannot be used to discharge the debt itself in most cases.
Student loans were traditionally dischargeable in bankruptcy. However, over the years, laws were passed limiting the ability of people borrowing federal student loans to discharge the loans in bankruptcy. The laws were eventually expanded to cover private student loans. Under current law, it is almost impossible to discharge student loans in bankruptcy unless the borrower can show undue hardship.
Under the undue hardship exception, a borrower can discharge a student loan debt if he or she can meet the test used in almost all federal jurisdictions. Under this test, the person seeking the discharge of the student loans has to prove three things:
- He or she cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans;
- That the inability to maintain a minimal standard of living is a condition that will remain or persist for the majority of the repayment period; and
- That he or she has made good faith efforts to repay the loans.
If a borrower has federal student loans, there are several repayment plans to choose from that could help reduce the monthly payment due on the loan. In addition, there are currently several forgiveness programs for people who work in public service after graduating from college. While there is a possibility that the public service forgiveness program will be cut back or eliminated, it is currently available, and borrowers with qualifying student loans should consider this as an option to repay their loans. Borrowers should remember that when a person’s loans are forgiven, it may sometimes result in the person owing a large tax bill because the forgiven amount is considered income by the federal government.
While student loans may not be dischargeable in bankruptcy, if a borrower has other significant debts, bankruptcy can be a good option to manage it all, including the student loan debt. If the other debts can be discharged, the monthly payments on the student loan may become more affordable. However, this would only work if the problem with not affording the student loan is other debt payments. If a person has a problem with budgeting, filing for bankruptcy may not fix the problem.
Contact an Experienced Attorney
If you have student loans in addition to other significant debts, and you are having a hard time managing all the debt and meeting your obligations each month, you should discuss your options with an experienced attorney from Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan. We can talk about Solutions Without Bankruptcy®, as well as discuss your bankruptcy options if that is what is best for you. Contact us for a consultation today.
(image courtesy of Faustin Tuyamba)